Question

1. A contractionary or tight monetary policy

A. lowers interest rates.

B. reduces borrowing.

C. stimulates borrowing.

2. After 2008, quantitative easing was distinctively different from traditional central bank intervention because it focused on

A. encourage long-term capital projects and ease mortgage conditions by purchasing long-term government securities.

B. encouraging investment by raising private bank’s revenues.

C. restoring the private sectors credit by purchasing “toxic assets”.

Answer 1

Answer-1. Correct option is 'B'

A contractionary or tight monetary policy reduces borrowing. A contractionary or tight monetary policy is a type of monetary policy that is intended to reduce the rate of monetary expansion to fight inflation. In contractionary monetary policy, the central bank causes the supply of money and credit in the economy to decrease, which raises the interest rate, discouraging borrowing for investment and consumption and shifting aggregate demand left.

Answer-2. Correct option is 'A'

After 2008, quantitative easing was distinctively different from traditional central bank intervention because it focused on encourage long-term capital projects and ease mortgage conditions by purchasing long-term government securities. Quantitative easing (QE) is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment.